The document discusses the global coffee trade and factors affecting imports and exports between producing and consuming countries. It describes how Vietnam's large coffee supply and increased production in Brazil led to a significant price drop in the late 1990s as supply outpaced demand. This hurt coffee farmers. Efforts were made by organizations like the World Bank and NGOs to help farmers through subsidies, fair trade programs, and encouraging crop diversification. The document addresses questions about how supply and demand impact coffee prices and potential responses to oversupply issues.

1. THE GLOBAL COFFEE TRADE
Submitted by:
Group number: 2
SUBMITTED TO:
Dr. Monika Jain
Group Members:
14IB308 AKSHAY KR. GHOSH
14IB367 VIKASH KUMAR
14IB335 LAVI VARSHNEY
14IB340
14IB322
14IB302
MOHIT GEHANI
DIPTI SONI
AADYANT VASHISHTH
BirlaInstitute of Management Technology
5, Knowledge Park- II Greater Noida, National Capital Region,
UP- 201 306, INDIA

2. INTRODUCTION
The case is about the global coffee trade and a brief description of factors which affect import
and export of coffee between producing and consuming countries.
After late 1997, there was a drastic fall in the prices of coffee after the entry of Vietnam in the
coffee market by making a huge supply.
FALL IN COFFEE PRICE
Brazil’s production also increased due to some factors like improvements in mechanical
harvesting and increased irrigation. As the supply of coffee in global market increased and its
elasticity being low, the increase in demand was very low as compared to increase in supply, so
the prices fall down up to 25%.
This was a very tough time for the farmers as they were not getting a proper market share and
now fall in the prices made the conditions even worse. Now growing coffee was not giving them
proper earning and switching crops was not easy as there are very few alternatives that could be
grown on a coffee land.
World Bank and ICO organized a round table in May 2003 and called in the rich countries to
reduce the agricultural subsidies in order to allow potential diversification in coffee producing

3. countries. There were times when coffee prices were high die to some natural factors like frosts,
pests, diseases and by effective planning but it did not last long.
In 1959, Brazil and Columbia made sincere efforts to improve coffee market conditions. It
withheld its coffee production from market. Also an agreement was signed by which other
countries could not export more than some fixed quota.
Efforts made by NGOs:
 A floor price for farmers was set up.
 Farmers’ cooperatives had to be transparent and democratically controlled by farmers.
 Traders to buy directly from farmers.
 Upfront financing by importers to farmers.
 Implementation of planting of crops by farmers.
Many corporates followed fair trade conditions like Starbucks bought coffee through fair
trade, Sara Lee tried to buy at least 10% coffee from small farmers. P&G firstly resisted but
finally it also bought coffee under fair trade. Nestley bought 13% coffee under fair trade.
Kraft bought 5% under fair trade.
COFFEE PRICES,EXPORTS AND PRODUCTION

4. Question 1.Why does the price of coffee fluctuate so widely?
Ans: The basic reasons for the fluctuation of coffee prices:-
 The Supply is more than the demand: The logic of supply and demand states that
as the supply increases, price falls down. The additional supply caused by the entry of
Vietnam in the coffee market and increased production by brazil increased the coffee
production to 113 million bags. At that moment, i.e. in 2001-2002, the consumption
was just 106 million. Hence, Fluctuations in Prices.
EXPORT FROM VIETNAM AND BRAZIL
 The Variation in Income Worldwide: With the increase in income, the demand for
goods with higher qualities increased leading to decrease in the demand of coffee.
This also led to the fluctuation in price.
 America Withdrawal from ICA: The price was under control until it was under
International Coffee Agreement (ICA) but when United States withdraw its support
from ICA, which led to certain fall in price.
 Entry of NGO: NGO entry caused to control the coffee prices to some extent by
restricting the supply of raw coffee which again led the coffee prices to rise to some
extent.
THIS ALL ENTRY AND EXIT CAUSED BY VARIOUS COUNTRIES AND
ORGANISATION LED TO COFFEE PRICE FLUCTUATION SO WIDELY.

5. Question 2. How can farmers respond to a chronic oversupply problem? How
do policies of consuming nations impact the potential exporting-country
responses?
Ans :
 The farmers should not only rely only on coffee production for their Livelihood but
they should also look for other alternatives which could help them earn more money.
 They should also be aware of the retail coffee prices and their share in it.
 They should stand for their rights and demand for fare prices.
Policies of consuming nations that impact exporting countries:
-Number of consumer countries is importing from: more the number of exporters
than bargaining power of importer will increase and also the amount imported will also
be less.
-Total coffee consumption: if the total coffee consumption is low than less import and
vice versa.
-Excise duty: policies like excise duty imposed on quantity imported also effects the
export.
- Taxes levied: various taxes levied on retailers by the government impacts total
import.
Question 3. Can supply and demand be overruled by a suitably designed
international organization, or is an organization like the International Coffee
Organization doomed to failure?
Ans
Yes International organization like ICO can overrule supply and demand by:
1. By levying strict policies for the producers and exporters to produce and export only
best quality of crops, which could ultimately restrict the oversupply of coffee crops
caused by supply of bad quality of crops
.

6. 2. Similarly by including every coffee exporting and importing countries under ICO
norms and regulation and levying quota restriction on export and import from
different countries. Which could regulate the supply
3. By forming strict policies for those countries who restrict to come under ICO norms
by restricting them from exporting to and importing from those ICO registered
countries.This can also lead to regulation in supply.
Yes organization like ICO can be doomed to failure as:
1. If countries do not follow its policy and back out irrespective of norms and
condition just because of there higher percentage of share in ICO.
2. If ICO lacks in formulation of new policies with changing market condition.
3. Lack of flexibility in adding new countries under the organization
Question 4. Evaluate the NGO’s proposals for improving the market. Are they
workable?
Ans:
The main problem of the market was supply was more than demand. Main focus
of any organization is to reduce supply and improve the demand. On the other hand the Main
focus of NGO was to improving the condition of farmer than the market. In case of NGO
proposal regarding stable price
1) Farmers growing other product would shift to growing Coffee product because of the fixed
price that coffee growing farmers would get. Which would ultimately result in increase in more
supply of coffee product, and would further result in even more deterioration of coffee market
2) since there was a need for reducing the supply of coffee product by shifting farmers towards
growing substitute products but certainty of price for the coffee product would stop Farmers
from shifting to grow substitute product because ultimately farmers wants to earn profit so they
will try to be in same field.
 In case of Access to credit :
Because of increased relationship between farmers and corporate farmers could
easily avail loan and even at lower interest so the farmers growing other product
would shift towards coffee producing because of availability of credit and thus
would result in over supply of coffee.

7. According to me the NGO proposal was not workable the were only for the benefit for farmers
and not for the market.
Question 5. Viewing yourself as a technocrat whose job is to revamp the
global green-coffee market so that it operates more in the growers’ favor,
what changes to the rules of the marketplace and/or national policies would
you recommend?
Ans. The Policies Changes Which I Would Have Suggested as a Technocrat would
Have Been:-
1. Since The Prices of Coffee Was Regularly Falling Because Of increase in Supply leading to
Increase in Competition Which was forcing The Seller of The Crop To sell it at lower cost
Which Could Have Lead To Market Crash. So as a Technocrat I Would Have Recommended
For Levying Higher Tax on Selling of Coffee Produce so That The Falling Coffee Prices in
Market Would have been Controlled.
2. Apart From This I Would Have Also Suggested To withdraw Excess Supply of
The Coffee Beans From The market by Government Officials.
 The Benefit Of Levying This Two Policies Would Have Been:-
a) By Levying Higher Taxes It Would Have Forced Small Players Of The Market to Leave
The Market Who Were Creating Excess Competition In The Market .
b) The Money Generated From Levying This Tax Would Have Been Used For
Making Fund For Providing Subsidy and Giving financial Support to Coffee
Producing Farmers in Shifting towards Growing Of Other Crops.